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Lenders are pushing for tighter terms on debt packages for larger European buyouts, after a sell-off in global markets has left European private equity firms with fewer options to raise debt for deals.

Private equity firms have held the upper hand in negotiations with lenders over debt terms over the past three years in Europe and have secured increasingly favourable terms such as looser investor protections.

However, executives said that after turmoil in the US debt markets and the effective closing of the high-yield bond market on both sides of the Atlantic, European lenders are beginning to demand more investor protections in debt packages and more flexibility on pricing.

Mark Donald, head of the London banking practice at law firm Weil Gotshal & Manges, said: “We have definitely seen some changes to terms. We have seen a pause for thought rather than a wholesale change in attitude. It is driven by sentiment out of the US, which has filtered through to Europe.”

He added that some private equity firms were anticipating changes that lenders were likely to make to terms and so were adding in these protections to their loan documents at an early stage to avoid negotiations later. “On more challenging credits, sponsors are pre-empting some of this and are building in some of these points into the deal terms when they are going out to the banks,” he said.

Executives said that some lenders are now demanding that at least one financial covenant is included in loan agreements, most commonly a leverage ratio that states how much debt a borrower can take on in relation to its equity. Lenders are also looking at a change of control provisions, which mean that if a company is sold the investor must pay off any outstanding debt.

Donald Lowe, a partner at law firm Travers Smith, said that terms in the upper end of the market may well be reaching an “inflexion point”.

He added: “The European market tends to follow what is going on across the pond where U.S. lenders have been tightening up on terms. Some European institutions are starting to say ‘hang on a minute we are increasingly uncomfortable with some of the aggressive documentation we have been forced to sign up to, in particular the drift of covenant-lite structures into smaller less liquid deals’.”

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Investors made several tweaks to NGA Human Resources’ €275 million finance package, which was led by Goldman Sachs and RBS, in February. A 50 basis points most favoured nation provision – which prevents a borrower from taking on new loans at a significantly higher interest rate – was added to the debt package, according to a report from S&P Global Market Intelligence. US private equity firm Kohlberg Kravis Roberts retains a 5% stake in the company.

Several large financing packages to back buyouts have been shelved in the US in recent months, leaving banks with the prospect of offloading debt at a loss. Goldman Sachs is struggling to sell $2 billion in bonds backing Vista Equity Partners’ buyout of Solera Holdings, according to The Wall Street Journal on February 26. While in Europe, LeasePlan shelved a €1.55 billion bond after difficulties attracting investor interest in the sale in February.